Use the figure below to answer the following questions.

Figure 28.2.3
-Refer to Figure 28.2.3. Assume that the figure illustrates an economy initially in equilibrium at the intersection of the SAS₀ curve and the AD₀ curve. If the aggregate demand curve is expected to shift to AD₁ but remains at AD₀, the new equilibrium real GDP is ________ and the new equilibrium price level is ________.
A)$380 billion; 100
B)$500 billion; 150
C)$500 billion; 100
D)$620 billion; 125
E)$380 billion; 125

Question

Use the figure below to answer the following questions.
  
Figure 28.2.3
-Refer to Figure 28.2.3. Assume that the figure illustrates an economy initially in equilibrium at the intersection of the SAS₀ curve and the AD₀ curve. If the aggregate demand curve is expected to shift to AD₁ but remains at AD₀, the new equilibrium real GDP is ________ and the new equilibrium price level is ________.
A)$380 billion; 100 
B)$500 billion; 150 
C)$500 billion; 100 
D)$620 billion; 125 
E)$380 billion; 125

Quizplus · Accepted Answer

If the AD curve is expected to shift to AD1 but remains at AD0, the economy will experience a decrease in output as there is a difference between the output produced at the initial equilibrium GDP and the output demanded at the new price level. Therefore, the equilibrium will move left along the SAS curve to a new point. The new equilibrium real GDP is $380 billion, which is the output level where the SAS and AD₀ curves intersect. The new equilibrium price level is 125, which is the price level where the SAS and AD₁ curves intersect. Thus, the correct answer is (E) $380 billion; 125.

Use the Figure Below to Answer the Following Questions